Could This Be the Year for Federal Pension Reform?

The famous 2010 bipartisan fiscal commission led by former Republican Sen. Alan Simpson from Wyoming and former Clinton White House Chief of Staff Erskine Bowles last week released its latest plan, which calls for $2.5 trillion worth of spending cuts and tax increases. Like President Obama and many lawmakers, the duo thinks federal employees need to contribute more to their retirement benefits. They also favor moving to a less generous formula -- the so-called chained CPI -- to calculate retiree cost-of-living adjustments.

“Military and civilian pensions are both out of line with pension benefits available to the average worker in the private sector, and in some cases, out of line with each other across different categories of federal employment,” the new version of the plan states. Simpson-Bowles recommends “gradually” increasing federal civilian pensions “so that new federal employees ultimately pay about one-half the cost of their pensions, and existing federal employees pay one-quarter.” New employees now contribute 3.1 percent of each paycheck to their defined benefit, while most current feds put 0.8 percent of their pay toward their pensions.

Other Simpson-Bowles proposals that aren’t popular with federal employees: Shifting the calculation for civilian and military pension benefits from the current formula, which is based on the three highest years of salary to the highest five years, and reducing the cost-of-living adjustment for workers who retire before age 62, with a full catch-up once they reach that age.

“On the military retirement side, policymakers should ultimately consider more structural reforms to move away from a system that offers no benefit for those who retire after 19 years and encourages good officers to leave only after 20,” the report says.

The commission estimates federal retirement reform would save the government $100 billion over the next decade.

Simpson and Bowles, who now lead The Moment of Truth project sponsored by the Committee for a Responsible Federal Budget, also want to shake up the Federal Employees Health Benefits Program. They would transform it into a premium support program, or a voucher plan, as some critics call the idea. Essentially, the government would give beneficiaries a certain amount of money to buy their own health insurance.

As for TRICARE, the military’s $53 billion health care program, the bipartisan duo recommends applying Medigap restrictions to TRICARE-for-Life, the program for military retirees age 65 and older. Other possibilities for savings, according to Simpson-Bowles, include charging an enrollment fee for TRICARE-for-Life beneficiaries and higher prescription drug co-payments for nonmilitary TRICARE enrollees.

Two previous proposals backed by the commission -- an extended pay freeze for civilian employees and shrinking the federal workforce through attrition -- are not in the most recent deficit reduction plan.

The recommendations have many supporters and detractors, and it’s not yet clear which, if any, of the proposals affecting federal workers will turn into reality. Increasing the amount feds contribute to their pensions seems the most likely, given its broad support from both sides of the aisle.

Federal employee unions consistently have stated their opposition to any deficit reduction measure that cuts workers’ pay and benefits. Jacque Simon, public policy director at the American Federation of Government Employees, has called the commission “loathsome.”